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How to Undermine Value Care: Lessons from Pharmaceuticals

A brief commentary (LS Dafny et al. NEJM 2016; 375: 2013-15) helps explain how easy it is to prevent high-value care. The authors note that one example of encouraging high-value care is to tier drugs in insurance plans. Insurers can encourage consumers to use drugs that provide high value by providing lower copays (lower tier) and at the same time this allows the insurers some leverage with pharmaceutical manufacturers in negotiating prices of their medications. Roughly 75% of insurance plans have at least three drug tiers.

The pharmaceutical companies have “counterattacked” by offering “copayment coupons.” Since insurers still pay ~80% of the costs, even with these coupons, the manufacturers are able to shift spending to higher-priced medications and still make a considerable profit. The net effect of copayment coupons:

“reduce the incentive for drug manufacturers to offer price concessions in exchange for preferred tier placement.”

With these coupons, the strategy of charging “insurers the highest price possible while remaining on the formulary” takes hold

The number of these “copayment coupons has skyrocketed.” By 2010, approximately half of brand-name drug revenue was derived from drugs with copayment coupons.

“We estimate that coupons increase the percentage of prescriptions filled with brand-name formulations by more than 60%.” Among 85 drugs facing generic competition, “between 2007-2010, the 23 drugs with coupons likely was between $700 million to 2.7 billion higher than it would have been” without these coupons.

The authors note that health care providers may ultimately pursue similar pathways to try to get around insurance companies preferred provider panels. This could occur as insurance companies increasingly try to control costs by demanding steep discounts from providers in exchange for inclusion in more limited networks.

My take: Providing high value care is not the chief concern for private industry. Both the insurance companies and the pharmaceutical companies develop policies and countermoves to further their best interests.